Guten Morgen!

Finally, the first serious global “player” suggested a very well-paid and powerful job opening for Merkel. As a heads-up: Even Obama would not qualify for this.  We wish you a wonderful start into your weekend and week with the newest Krautshell edition.

Enjoy and ping us for more!

Anna                                Christian

#RoadToBTW21 Are There Any Chances Olaf Scholz Could Become Chancellor?

The race for Chancellor in Germany so far looks like a two-(wo)man-show between Armin Laschet (CDU) and Annalena Baerbock (Greens). However, as a popular German saying goes, “When two people quarrel, a third rejoices.” That third person could be Olaf Scholz (SPD), current Finance Minister and Vice-Chancellor as well as Chancellor-candidate for the SPD. At the party convention on Sunday Scholz presented his four points for Germany in the next decade: better and greener mobility, making climate protection affordable for everyone, enhancing digitalization and improved health care. All this is accompanied by a core message: a society of mutual respect. Can “respect” create a hype comparable to the one that surrounded Aretha Franklin when she released her song in 1967?

The formerly proud SPD used to poll in the 40% range, especially with Chancellors like Willy Brandt and Helmut Schmidt. Today, the party is a classical underdog, polling between 14-16%. It would be wrong to say they have nothing to lose, but they’re not dealing with a corruption scandal like the CDU is and, contrary to the Greens, they have a candidate who is associated with attributes like “government experience” and “reliability.” Should the battle between Laschet and Baerbock become nasty and Scholz’s message of mutual respect resonate with the people, we could witness a  reinvigorated SPD in September. Another advantage for Scholz could be that many people find him quite comparable to Angela Merkel: quiet, cautious, and calculated. He is not a classical campaigner, unlikely to emotionally stir a crowd. However, it seems like German people don’t need that. And, just like Aretha Franklin, Olaf Scholz might be very confident to say to the Germans in September: “What you want, baby, I got it!”

On a funny sidenote: If you want to know why German Twitter is making ironical comparisons between Scholz and Frank Underwood, watch his campaign video here.

Israel-Palestine Conflict: What are Europeans Saying?

With the renewed, intense outbreak of violence between the Israeli and Palestinian sides this past week, many political stakeholders have thrown in their two cents. As an American living in Europe, I’ve been following reactions to the conflict from both sides of the Atlantic. While in the US, generally speaking, responses are quite clear in support of one side or the other and tend to follow party/political persuasion lines, German reactions are often more nuanced given the painful history, and are harder to explain through political orientation.

Few people would be surprised to know that politicians directly involved with diplomacy are hesitant to express support for either of the two sides, with chairman of the Bundestag Foreign Affairs Committee Norbert Röttgen (CDU) even stating in an interview that “the EU plays practically no role in mediating the Middle East conflict.” Contrary to Röttgen, Michael Gahler, who is also member the CDU and a foreign policy expert in the European Parliament believes that the conflict can only be deescalated with a joint EU-US effort. Meanwhile, the center-left SPD Chancellor candidate Olaf Scholz could not have been clearer with his statement: “For the German government, Israel’s security is Germany’s raison d’être.” Germany’s political left also remains divided on the topic, best illustrated through the current conflict occurring within the environmental movement “Fridays for Future” (FFF). When the FFF Instagram account shared content calling for a boycott against Israel, the German branch of the movement did not share the calls for action but did not distance itself from the posts either. Instead, FFF Germany toed a careful line by sharing a general message condemning antisemitism, implicitly admitting a lack of consensus among its followers. Why does this matter? Many of the FFF-supporters will likely be voting for the Greens (surprising, I know), so strongly worded statements in favor of either side could mean lost votes for the party. Feel free to ping us if you want to find out more!

EU Court Verdict: No Wrongdoing by Amazon

Staying on-brand with our seemingly weekly update on EU corporate tax policy, this week we bring you an interesting development out of the EU General Court in Luxembourg. This Wednesday, the court overruled the European Commission’s finding that Luxembourg granted illegal tax benefits to Amazon. In the words of the court, “none of the Commission’s findings were sufficient to demonstrate the existence of an advantage.” With this ruling, Amazon no longer needs to pay roughly €250 million in back taxes to the Luxembourgish state.

This case began back in 2017, but the tax practices in question date back to 2006, when Amazon shifted the lion’s share of their European profits  to a subsidiary without employees, and therefore not subject to tax. The tech giant’s argument was largely based on the idea that most of Amazon’s success comes from its brand name and IP-protected technology, both generated in the US. While Amazon might have won this battle, EU Competition Commissioner Margrethe Vestager is digging in for the war. Shortly after the court ruling was issued, she stated that Brussels would study the decision very carefully, indicating a possibility her office may bump up the verdict to the EU’s highest judicial body, the European Court of Justice. Furthermore, Vestager can take home a minor victory in this situation, as the case exposed yet another example of profit-shifting through loopholes in a very public fashion. In fact, it might even strengthen the argument for and accelerate the process of implementing a global minimum corporate tax currently championed by the Biden administration. We’ll be sure to keep you up-to-date with any developments in European corporate tax policy.

Corruption in Austria – Does Chancellor Kurz Have to Resign?

Admittedly, we have some prejudice and cliches when it comes to our neighbor country Austria (although mainly positive ones), but its current political state is certainly worrying. Currently, corruption scandals coin the daily life of politics in Austria. While our Austrian neighbors were well-aware of this fact for a few years now, us Germany were only partially in the loop. However, Germans became interested in the happenings south of the Bavarian border last Friday, when German late night show host Jan Böhmermann told the story of Austrian Chancellor Kurz haggling over jobs for friends of his.

Kurz now faces some serious allegations. The “central prosecution office for white-collar crime and corruption” accuses him of making false claims in the committee of inquiry over the so-called “Ibiza-gate.” Concretely, it is about the appointment of Thomas Schmid as head of Austria’s state holding company. Kurz, who is good friends with Schmid, states in the inquiry committee that he had nothing to do with the decision in his favor. Now, text messages from Schmid’s phone tell another story. Theoretically, Kurz could now be officially indicted. The critical point in the whole affair seems to be Kurz’s opinion of the prosecution office. It is not the first time that Kurz tries to disparage the Austrian justice system by claiming they are “against” him and his party. Whether or not you agree with German satirist Böhmermann and see a danger for the constitutional state in Kurz’s behavior, some transparency by Kurz would certainly help reinforce Austrians’ trust in their politicians. We’ll keep you posted.

Inflation – Time to Panic?

This week’s news of rising inflation didn’t only make headlines in the US. Also in Germany, products are becoming more expensive. Over here, price increases are particularly visible in the energy sector: prices have increased approximately 8% over the past year. Many factors caused this steep price hike, including our new CO2 price and record-low oil prices due to the price decline during the first Corona infection wave. One of the highest price increases was actually in the gardening business as Germans obviously developed a taste for home gardening during the pandemic. Do we need to worry over here? (Because of inflation, not because of the gardening stuff. Well, maybe also because of that).

One of Germany’s key challenges in the next year will be to come up with laws that combat climate change. These could make products more expensive, creating the need for relief in other sectors. Furthermore, the quantitative easing of the European Central Bank (ECB) could come under scrutiny together with the zero-interest-rate policy. This could create new problems: many EU states are heavily indebted and some economists predict that raising the base rate could result in their bankruptcy if their refinancing comes at a higher rate than their GDP growth. On the other hand, when low interest rates remain, and inflation increases: what are the implications for savers whose deposits lose value every year, forcing them to invest in stocks (which are also volatile by nature)? Many questions remain open. What’s certain is that inflation will become a central topic in EU and German politics after we experienced a long period of zero-interest-rate policy with surprisingly low inflation.

Nursing and Care – Reform Disaster

At the beginning of the Coronavirus pandemic, many people in Germany also stood on their balconies, at their windows or on the street applauding healthcare workers (and other essential jobs). Even celebrities seemed to enjoy filming themselves applauding. Over a year later, necessary reforms in the health care sector have still not occurred. Quite simply put: Applause doesn’t put food on the table and the governing coalition is still divided on how to reform the system.

Healthcare in Germany is supported by the so-called “care insurance,” a mechanism employees pay into with their salaries, basically like a tax. When your relatives need a spot in a nursing home for example, you contribute a certain percentage yourself, and the rest is “made up” by the insurance. The copayment decreases the longer someone is in the nursing home. A first suggestion by the CDU was to only pay the insurance support to those facilities that also pay care workers standard wages. The SPD wants to increase these standard wages. A great idea in practice, but one that could also lead to an increase in copayments, as costs for facilities would rise, in turn disproportionally affecting lower income households. Besides the wages and the question of financing care in general, another acute problem is the currently 40,000 unfilled positions in care work. Given Germany’s aging population, these need to be filled pronto. Even worse, it doesn’t look like the coalition is willing to solve its dispute before the election. Meaning, yet again, the losers are care workers and those with relatives in need of care. We’ll keep you posted.

• New Job for Merkel?: Germany’s football (soccer) association will soon need a new president. On Thursday, German ex-footballer, 2014 world champion and ex-player for the Chicago Fire Bastian Schweinsteiger smiled when saying: “I would know an experienced woman, who would be available in October.” Although unlikely, Merkel seemed to have become a real football fan the last years and her being president of the association would surely be an absolute blast!

• Less Money For The State: Due to the Corona crisis, the German government will collect €241 billion less in taxes between 2021 and 2024. This means, recovering state finances from the Corona crisis will take quite some years.

• Climate Protection Law: After we reported on the plans to reform the climate protection law last week, we can now say that the governing parties agreed on a plan. Until 2045, Germany shall become climate neutral, with an emission reduction target of 65% compared to 1990 in 2030 or, respectively, 88% in 2040. The reform still has to pass the Parliament and the Bundesrat.

Vac(cinn)ation is soon over

By the end of this year, we will start to understand how the world was changed over the 1.5 historical years of a global pandemic. Our European world will probably go back to normal soon and around Christmas we will look back and start to digest what really happened.

This week’s news show that Europe also had a lockdown in terms of real-world politics. Germany is slowly moving back towards “normal” reality. Our election campaign is about freedom, security, money and debt, while inflation is back in the conversation. The world around us is back to the old normal, too, as Palestine is back to being a war zone and European, US and Russian diplomats are trying to find solutions. In the meantime, Erdogan wants to leverage the Anti-Israeli sentiment, is connecting with Putin and the international community, and is trying yet again to become the Ottoman leader he’s desperately wanted to be for a political lifetime.

Like in old, normal times, Putin will play along to test Biden’s resolve in the region, Biden will demonstrate that resolve, and Erdogan’s goal to lead the regional military power he hopes Turkey will become will fall flat again. Then, when Russia will have signaled support for diplomacy instead of the Turkish warmongering way of “teaching Israel a lesson,” Erdogan will pursue his second goal: becoming the Sunni leader of the region (also a longstanding goal of his). But, like always, the Sunni Arab world won’t pay him too much attention. Maybe a bit, like

Whether in her capacity as the world largest economic area or the world’s most powerful political anarchy – Europe will soon be back to the old normal and we will see if she is ready for the new normal. In Covid times, Europe brought the world its first vaccine, but also simultaneously made some major mistakes. In Covid times, “trial and error” was the norm. Even if many people died, also because of decisions that proved to be wrong, no one really knew what to do. It was a global-scale political sandboxing, a new reality with real results and casualties. Now, will Europe know what to do when we are back to normal? What kind of “normal” will it be? For Europe, Covid was a vacation from real world politics. Whatever the result will be, that vacation is over soon.